How the 2018 Tax Changes Will Affect You in 2019

6 second take: The new tax laws took effect in 2018, and they may have a huge impact on your tax return.

Emma Finnerty

At the end of 2017, Congress passed a major change to how taxes will be calculated for 2018. It was big news at the time. However, people slowly forgot about it throughout the year.

Unfortunately, very few people looked into how the changes would affect them. Now that 2018 is over, people are starting to look into how big their tax refunds will be. Sadly, for some, that refund may no longer exist. For others, their refund may be bigger.

Here are some of the major 2018 tax changes that may impact you. As with most things related to income tax, this is complicated and has many small and intricate parts. The law is 186 pages, so the summary below obviously doesn’t include every little detail. Make sure you consult with a tax professional to see the full effect the new law will have on your particular tax situation.

Major Tax Law Changes

There were quite a few changes that will significantly influence how most people calculate their taxes. “The biggest impacts of the new law affecting the typical family is the increased standard deduction and the increased child tax credit,” says James Wright, CPA and partner at Carr Riggs & Ingram’s office in Niceville, Florida.

Tax Rates Change

One of the biggest changes is the actual tax rates you’ll pay. The old tax rates were 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent, and 39.6 percent. The new ones have been lowered to 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent. The income tax brackets have also changed, but only slightly — nothing huge or out of the ordinary.

Changes to the Child Tax Credit

The new tax law comes with a new child tax credit for qualified children under the age of 17. Instead of getting a $1,000 tax credit per child, you now get $2,000 per child. And up to $1,400 of the credit is refundable. The phaseouts are currently much higher as well, which means more people should qualify than before. In the past, married people filing jointly had the credit phaseout at $110,000. It is now set at $400,000.

Filers with children 17 or older, or with other dependents like elderly relatives, can take advantage of a $500 credit per individual, but the credit is not refundable.

Standard Deductions Increase, But Personal Exemptions Disappear

Another big change is the increase of the standard deduction. Single filers now get $12,000; married filers filing jointly now get $24,000; married filers filing separately now get $12,000; and head-of-household filers now get $18,000. These numbers are a little less than double what the amount was under the old tax law.

“Under the old law, the standard deduction for a married couple filing a joint tax return was $13,000, and under the new law, it is $24,000,” says Wright.

“This means that many people who itemized their deductions in the past because they had items such as mortgage interest, real estate taxes, and charitable contributions that in total exceeded $13,000 will more than likely take the standard deduction because the total of those items is probably less than the $24,000.”

In order to itemize deductions, you’ll now have to exceed the higher standard deduction for itemizing to make sense. Essentially, this reduces the benefit of itemized deductions for a large portion of the population, as many will now simply claim the standard deduction.

Unfortunately, personal exemptions have been eliminated. In the past, you’d get an exemption of $4,150 each for yourself, your spouse, and all of your dependents. Now, you get nothing. If you have a large family, this could be a big negative, since the increased standard deduction may not offset the loss of the exemptions.

Changes to Other Deductions

Many deductions had changes made to them. First, the mortgage interest deduction now only allows you to deduct interest on a mortgage of up to $750,000 for mortgages taken out after December 15, 2017. Another big change is interest on home equity debt can no longer be used for a tax deduction in many cases.

The state and local tax deductions have also been changed drastically.

In the past, you could deduct state and local income or sales taxes and property taxes in an unlimited amount. Now, you’re limited to a total deduction for these taxes of just $10,000. While this may not affect lower-income individuals, it can play a huge role in states with high income or property taxes.

In addition to the major changes above, the following deductions have been completely eliminated in most cases:

Other miscellaneous deductions subject to the two-percent adjusted gross income limitation

College donations in exchange for sports tickets

How to Prepare Moving Forward

Ideally, you should have adjusted your federal income tax withholding as soon as the new tax law came out to account for the potential changes. Very few people have the knowledge and skill to do that on their own. (You might want to get help from a professional or from a tax program like H&R Block or FreeTaxUSA.)

If you didn’t do this, you didn’t change how much money you set aside to pay your federal taxes. This means that if you truly got a tax cut, you will get a bigger refund or owe less than you would have otherwise, depending on how much you were withholding before. Those that the new tax law negatively impacts will either get a smaller refund or owe more, depending on their situation.

If you’re just now figuring out that you’re going to owe money when you fill out your tax return, start setting aside as much money as possible to cover the potential tax bill. The IRS doesn’t care that you didn’t know about the changes. It’s going to want its money. The best thing to do is pay up as soon as possible.

Thankfully, the IRS has now had time to update its withholding calculator. Use this calculator to come up with the amount that should be withheld from your paycheck, and then fill out a new Form W-4 to give to your employer to adjust your withholdings. This will ensure that you’re withholding the right amount from your paycheck going forward. That way, your 2019 income taxes, which you’ll file in 2020, should go a bit smoother and have fewer surprises.